If you didn’t see the market today, then you don’t know that Netflix tanked…hard. Netflix was hit hard by the announcement that HBO would start offering standalone subscriptions – meaning you won’t have to watch HBO via cable provider, and can get a web-based subscription only. Sounds familiar, doesn’t it; it sounds a lot like….Netflix!
Netflix neatly summarized its strategy at the beginning of 2013: “The goal is to become HBO before HBO can become us,” said Ted Sarandos, who’s in charge of acquiring content for Netflix. Now, nearly two years later, the two content creation giants are converging, and are about to find themselves in an epic, heated battle. In today’s head on collision, the announcement from HBO that it would offer standalone web subscription service in 2015 and, for the first time, that HBO has 46 million household subscriptions, more than previously estimated and more than Netflix. In response, Netflix’s stock plummeted nearly 20%.
Hours later, Netflix revealed that it added 3 million subscribers to its service last quarter after launching in England, Germany, France, and several other European countries, rights to distribute subscriptions in countries that only were achieved recently as a part of Netflix’s globalization effort. At the end of September, Netflix had roughly 37 million streaming subscribers in the US and 15.8 million in the rest of the world. Though the numbers reflected strong growth, particularly outside of the US, they were lower than expected. Netflix scrambled, in the wake of HBO’s announcement and it’s corresponding share price plummet, to issue a statement:
Starting back in 2011 we started saying that HBO would be our primary long-term competitor, particularly for content. The competition will drive us both to be better. It was inevitable and sensible that they would eventually offer their service as a standalone application. Many people will subscribe to both Netflix and HBO since we have different shows, so we think it is likely we both prosper as consumers move to Internet TV.
These two companies didn’t always seem like rivals, at least not apparently, being that HBO subscriptions necessitated a cable package from a broadband and cable provider, like Time Warner or Verizon. Netflix began as a DVD delivery service – it still maintains roughly 6 million of those types of subscribers – but always aspired to change the television industry by delivering content over the internet.
Executives at Time Warner, parent company of HBO, were prickled by Netflix began referring to HBO as its chief rival. However, now the comparison seems immediately apparent. While Netflix has more revenue than HBO, HBO is more profitable, and earlier this year, Netflix passed HBO in subscription revenue.
Now though, HBO can easily pick up additional revenue in the US by offering standalone subscriptions to those without cable services. It’s unclear how this will affect its rivalry with Netflix – they can definitely coexist the same way that HBO has existed with other cable add-on channels like Showtime and Starz – but more heated competition could put pressure on prices. Netflix blamed its price hike to $9/month on lower than expected subscription growth, and it’s likely that HBO’s internet-only service will cost significantly more than that.